A Study On The Factors That Cause The Continuous Increase Of Global Broad Money-GDP Ratio

The global broad money-GDP ratio has risen from 58.9% in 1970 to 134.3% since the1970 s.In view of this phenomenon,two questions need to be explained,that is,why so much money is constantly created,and why nominal GDP does not grow in the same proportion with the total amount of money.According to the results of this study,the continuous rise of global broad money-GDP ratio is caused by the long-term and profound changes of economic operation mode of each country in the past half century.Its essence is the external reflection of the continuous improvement of economic leverage and economic virtualization in various countries.There are two factors that directly lead to the continuous rise of the global broad money-GDP ratio.First of all,in each country's economy,the total amount of money has continued to expand rapidly.Specifically,there are three realistic forces that promote this expansion,namely,the continuous increase of economic credit intensity,the continuous easing of the monetary policy of the central bank,and the continuous expansion of the government's financial deficits.First,the credit intensity of economies has been rising,as a direct result of sustained and rapid monetary expansion.In the post-credit money era,the vast majority of money circulating in the economy exists in the form of deposit money created by banks,so that the essential feature of modern banks is the implementation of credit creation methods,which directly form new money of the same amount.Over the past half century,the use of bank credit has begun to increase,and this has been accompanied by a sustained and rapid growth of money.In terms of demand for credit,modern production and way of life gradually began to change in the economy,national enterprises and households,this increasingly needs a lot of spending for the daily operation and rapid development of the enterprise,as well as the individual purchase of residential and consumption in advance,the bank is the most important source of financing in the national economy,bank credit demand increasingly strong;In terms of credit supply,the gradual relaxation of banks' regulation in various countries,the continuous promotion of banks' own innovation and technological advancement,the popularization and application of this in the banking industry and the continuous improvement of the depth of interbank market,the bank's ability to provide credit has been continuously enhanced.The breadth,depth and frequency of the use of bank credit in the modern economy of various countries are increasing,and the continuous growth and accumulation of deposit money is the essence of the continuous and rapid expansion of the total amount of money.Secondly,the increasingly accommodative monetary policies of central banks have had a positive impact on the continued rapid expansion of money.The source of money creation is at the central bank,which controls reserve aggregates,which limit the formation of credit and money in the banking system.Over the past half century,monetary policy has been used,which has become increasingly accommodative in tone globally.The roots of this shift can be traced back to the collapse of the Bretton Woods system in 1971,before which the pegging system adopted to fix the ratio between national currencies was maintained to some extent,which limited the scope for central banks to use monetary policy,while the collapse of the system opened the door for monetary policy in countries to move towards the collapse of the system opened the door to a move towards a loosening of monetary policy.In the following decades,as the production capacity of countries increased and the chronic shortage of effective demand in the market became more pronounced,central banks became increasingly aware of the important role of accommodative monetary policy in increasing the aggregate purchasing power of society,and as competition in international markets intensified,countries sought to increase the international competitiveness of their enterprises by steering their currencies towards depreciation,further increasing the demand for accommodative monetary policy and objective requirements.The monetary policy stance of central banks gradually shifted in the direction of easing,and the continued rapid expansion of monetary aggregates was fuelled.Thirdly,governments' fiscal deficits have been implemented and this gradual expansion has contributed to the continued rapid expansion of currencies.Over the past half century,the rapid already growth in spending on various social programmes,which,along with the increasing abuse of fiscal stimulus,has led to increasing fiscal pressure on governments to issue additional government debt on a sustained basis,absorbed by their own central banks,with each country thus opening the way,to varying degrees,for the monetisation of fiscal deficits,in essence,for central banks to release reserves into the banking system to complete their debt purchases.Increasingly,central banks became the largest creditors of their own fiscal sectors,and this behaviour contributed more and more significantly to the continued rapid expansion of monetary aggregates.As a result of these interrelated factors,the monetary aggregates in national economies have continued to expand rapidly,with money essentially reflecting the debt relationship being reflected,we refer to this inherent mechanism that has led to a sustained rise in the global broad money-GDP ratio as the leveraging of national economies.Another direct cause of the continued rise in the global broad money-GDP ratio is the gradual decline in the impetus of monetary expansion to GDP growth in various economies.The impact of money on GDP varies across markets,with some uses of money contributing to GDP growth and others not.Since the 1970 s,the factors such as the financial liberalization and information technology,represented by the financial market and the stock of the real estate market of virtual economic sectors in the global scope rapid development,led to a currency to reconfigure,makes a considerable part of money not to support the real sector of the actual productive economic activity,Instead,it flows into the virtual economy sector and serves the trading activity of existing virtual assets such as securities and stock of real estate,which has very limited effect on GDP growth.Moreover,in the process of the continuous expansion of the virtual economy,the increasingly active transaction of virtual assets increasingly relies on the currency circulation in the virtual economy sector,which forms more demand for money.When banks accept financial assets and real estate as collateral to issue new loans,the total amount of money will be further increased.Given that the gradual decline of the impetus of monetary expansion to GDP growth reflects the tendency of the modern economic system to go from real to virtual,we refer to the underlying mechanism that causes the global broad money-GDP ratio to continue to rise as the virtualization of national economies.As economies become more leveraged and virtualized,it is inevitable that the global broad money-GDP ratio will continue to rise.Based on the discussion of some immediate realities in China's national context,three takeaways: first,bank credit creates important economic value,but the increasing leverage of China's corporate sector increases the vulnerability of the economy,and there is a certain inefficient allocation of resources under the banks' current credit allocation preferences,the total amount of credit creation and the flow of credit allocation need to be attended to,and the basic monetary policy The basic focus of monetary policy should perhaps be placed on strengthening the innovative use of targeted adjustment tools and actively encouraging credit creation with potential social value through well-targeted and differentiated regulation,while weakening reliance on a credit-intensive economic growth model.Secondly,although China's central fiscal deficit is still manageable,it is still necessary to exercise caution in the use of deficit fiscal policy in the future,and to keep fiscal intervention in the economy to an effective and limited extent,while actively cooperating with relevant reforms.At the same time,the pace of social security construction should be controlled and scientifically refined to avoid its development exceeding the objective reality and thus harming the strength of economic development.Thirdly,the modernisation of China's finance is a clear goal to be pursued,but the hope of China's economy lies in the real economy,and finance can only play second fiddle.